Please answer the following multiple choice question. Please provide how you got to the answer:
1) Lindbergh Company has the following date related to its capital structure:
| CASE A | | CASE B |
| EBIT (in perpetuity): | $175,000 | | EBIT (in perpetuity): | $175,000 |
| Rate on debt: | 6.0 % | | Rate on debt: | 6.0 % |
| Cost of Equity: | 10.0% | | Cost of Equity: | 10.0% |
| Tax Rate: | 35.0% | | Tax Rate: | 35.0% |
| Debt: | 0 | | Debt: | Borrow $135,000 to buy share |
| | | | Will have debt in perpetuity |
What is the value of unlevered firm (Case A) and the levered firm (Case B)
| a) | |
| b) | |
| c) | |
Solution: Multiple Choice Question to Answer